It’s one of the most far reaching budget statements in living memory. What might it mean for the UK economy and for your finances? We asked our experts.

What are the repercussions for investors from the government’s Autumn Statement? How does it impact the outlook for the UK economy?

Will you have to adjust your financial plans? Are you now more likely to be caught out by capital gains tax? How much can you now rely on dividend income? And what about the pension savings you hope to build and the legacy you want to leave behind?

These are some of the questions being asked by investors after the Chancellor of the Exchequer, Jeremy Hunt, announced a new package of economic measures. We asked some of our experts for their initial thoughts. Here’s what they said.

On investors potentially paying more tax on their capital gains and dividends

James Norton“The biggest changes in the Autumn Statement were on capital gains tax (CGT) and dividends tax as the allowances on both were cut. In the case of CGT, the annual exempt amount is set to fall from £12,300 to £6,000 next tax year and still further to £3,000 from April 2024. There’s a similarly sharp downward adjustment on the dividends side, where the allowance is set to halve to £1,000 and halve again to £500 over the next two years. The moves, once complete, are projected to raise £1.2 billion a year for the government. They serve as a reminder to investors to consider making the most of the annual allowances on their individual savings accounts (ISA) as well as any tax-relief available on pension contributions…

Investors should always focus on what they can control and sheltering your money in this way from HM Revenue and Customs is one surefire way to maximise your potential returns. You could also think about it in a holistic way, if there are two of you, by making the most of your partner’s ISA allowance too. In this way, you can spread your tax exposure. In fact, if you are a higher-rate taxpayer, you have the option to transfer some of your non-ISA investments to your partner too if they happen to be in a lower-tax bracket.”  

James Norton, head of financial planners

Note: You can save up £20,000 per tax year in an ISA (£9,000 in the case of a Junior ISA). The tax year ends on 5 April.

Find out how some of our experts have invested their ISAs.

On the revised outlook for the economy and public finances

Shaan Raithatha“The cost savings announced by the Chancellor amount to £55 billion, or about 2% of GDP, over the next five fiscal years. This puts the UK’s finances on a more sustainable path, with the debt-to-GDP ratio stabilising from 2025 onwards (see chart below). The positive surprise was the modest loosening in fiscal policy pencilled in until 2024. This includes additional funding on healthcare (+£3 billion) and schools (+£2 billion), and that resource spending is to grow by 1% in real terms from 2024. A 10% increase in the national living wage was also announced. Altogether, this will help to protect the economy from the ongoing recession that we expect will last for six quarters.”

Shaan Raithatha, senior economist

How the UK’s debt-to-GDP ratio is set to stabilise from 2025 onwards

Source: Office for Budget Responsibility (OBR)

On the potential impact on pension savings

Andrew Marker“There was undoubtedly good news from the Chancellor for the retired and those planning their retirement finances after he opted to raise the state pension by a whopping 10.1%, in line with inflation, and announced that the ‘triple-lock guarantee’ would remain in place, safeguarding further future rises. Just as welcome is what the Chancellor didn’t say because there were no changes to the tax relief available on private pension contributions. This had been mooted as a possibility in some newspapers and would have forced many investors to revise their retirement plans. So, it’s as you were, with £20 added automatically to every £80 you pay into a self-invested personal pension (SIPP).

Higher-rate and additional-rate taxpayers can also continue to claim back additional money on their pension contributions, which is just as well given more people will increasingly be drawn into these brackets now that personal tax thresholds have been frozen until 2028 and the higher-rate upper threshold was reduced from £150,000 to £125,140…

So consider taking maximum advantage while you can and make the most of current rules that allow you to carry-forward unused tax-relief from the previous tax years. Just remember to keep within your annual allowance limits.”

Andrew Marker, head of retail pensions

Note: You can pay up to 100% of your gross annual earnings into a pension and earn tax-relief on them up to a maximum £40,000. Basic-rate taxpayers get 20% pension tax relief, higher-rate taxpayers 40% and additional-rate taxpayers 45%.

SIPP or ISA: How to you decide?

On retirees potentially paying more income tax and leaving less to their loved ones

Zoe DaglessThe freeze on personal allowances could affect retirees too, don’t forget. It’s something those nearing retirement may need to budget for. If you have ISA savings built up alongside your pension, though, you could consider drawing from these as well as your pension to keep your tax bill down: while your pension withdrawals may form part of your taxable income, ISA withdrawals do not…

Also worth noting is the fact that inheritance tax thresholds are now frozen until April 2028. So the most any of us can technically leave our loved ones tax-free is at £325,000 for another six years – or £500,000, if we include a main residence left to a person’s children or grandchildren. I say ‘technically’ because any unused threshold can usually be added to your partner’s threshold when you die. Even so, there’s no getting away from the fact that inheritance tax at 40% can take a big bite out of any legacy…

It’s another reason to consider building up more capital in your pension since assets held in your pension do not form part of your estate, and so are exempt from inheritance tax. It’s reason also to think twice before taking money out of your pension if you haven’t got an immediate use for it.”

Zoe Dagless, senior financial planner

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

The eligibility to invest in an ISA or personal pension depends on individual circumstances and all tax rules and pension rules may change in future.

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.

The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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